04/29/2013 // Justice News Flash: Featured Column // Kathleen Scanlan // (press release)
During the financial crisis the federal government was faced with either bailing out large, interconnected financial institutions that had gambled and lost on the housing market, or risking potential (some say likely) disaster in the global economy. The federal government’s decision to avert global economic disaster and initiate the bailout solidified our current reality that certain financial institutions are somehow “too big to fail.” Those who lost homes in foreclosure and/or their retirement savings are laser-focused on how these financial institutions have fared better than them. However, “too big to fail” banks are just one example of mega-businesses that interact with the government under a different set of rules than the average citizen.
Take big pharma as a case study. The US Attorney for the Southern District of New York, Preet Bharara, recently announced a case against “repeat offender” Novartis Pharmaceuticals, Inc. for allegedly engaging in a kickback scheme to increase sales of a kidney transplant related drug. According to the Project on Government Oversight Novartis has been involved in 11 instances of misconduct since 1995 resulting in $791.2 million in government fines, penalties and settlements. (http://www.contractormisconduct.org/index.cfm/1,73,223,html?criteria=novartis&submit=search) In one of them involving the same U.S. unit, Novartis agreed to pay $420 million and pleaded guilty to a misdemeanor violation of federal drug law to settle criminal and civil allegations involving kickbacks and illegal marketing. In fact, Novartis agreed to closer government supervision as part of a Corporate Integrity Agreement. In other words, even under heightened scrutiny the company is alleged to have still engaged in fraud totaling hundreds of millions of dollars.
How does this happen? As a pharmaceutical company, Novartis sells a wide variety of drugs, biologics and medical devices. The Medicare and Medicaid programs are large customers (47% of the sales of the drug at issue in this latest case). When Novartis – or any other big pharma – sells important drugs and devices even as they engage in fraud and kickbacks, the dirty reality is the government will never impose its ultimate sanction of exclusion from future government contracts. To be fair, Novartis is making headlines now, but it does not even make the “Top 100” list for misconduct. Fellow pharma repeat offenders Pfizer and Merck have each paid back billions in settlements under the False Claims Act. Big pharma has become indispensable to our modern healthcare in much the way “too big to fail” banks have infiltrated the global economy. And different rules have emerged. Big pharma is, in effect, too big to exclude.
All hope is not lost, however. Even if big pharma is too big to exclude and corporate integrity agreements do not deter future misconduct, as would seem to be the case with Novartis, whistleblowers remain a real and present danger. They are the best hope for actually affecting real change. Indeed, Novartis’ latest legal hot water is driven by a whistleblower who filed a qui tam complaint under seal just four months after Novartis signed the corporate integrity agreement. With the settled case and the new one alleging nearly identical misconduct, it begs the question of whether Novartis ever stopped. Since the government has now intervened in the whistleblower’s case, Novartis faces liability under the False Claims Act for three times its total sales in that scheme with 15%-30% of any recovery going to the whistleblower as well as potential liability relating to the transplant drug in the AG’s suit. Fraud reform in this industry boils down to a cost-benefit analysis. When enough whistleblowers expose big pharma engaged in these multiple schemes over and over and over again the benefits of engaging in fraud will eventually be outweighed by the even higher cost of getting caught. It won’t matter if they are too big to exclude or not. Their shareholders will tell them to cut it out.
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